The Real Impact of Interest Rates on Your Mortgage Payment
Interest rates are often a hot topic when discussing mortgage loans. Rightfully so, as there is a direct correlation between the rate & your payment. The lower, the better. I thought it might be helpful to provide some numbers to quantify what differences in percentages make a significant or less significant impact on your payment.
The Big Impact A large difference in interest rates, such as 1% or more, can substantially affect your mortgage payment. For example, on a $300,000 mortgage with a 30-year term, a rate of 6% instead of 5% increases your monthly payment by over $190. Over the life of the loan, this seemingly small percentage difference could cost you tens of thousands of dollars.
When Small Rate Differences Are Less Significant On the other hand, smaller differences in rates—like 0.125% or 0.25%—usually have a minor impact on your payment. For instance, the same $300,000 loan at 6% versus 6.125% would result in a payment increase of about $25 per month. While every dollar counts, it’s important to weigh this against other factors, such as closing costs, loan terms, and flexibility.
Focus on the Bigger Picture While securing a competitive rate is important, focusing solely on interest rates can lead you to overlook other vital aspects of your mortgage. Working with a trusted mortgage professional can help you evaluate the full picture and find the best loan option for your financial situation.
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